F5 Networks Targets Security, App Vulnerability

F5 Networks (FFIV) aims to step up its push into security, a bright spot in corporate tech spending.

The data center gear maker's core business has slowed, so it needs a lift. Shares of F5 are down 30% since May.

Goldman Sachs estimates that F5's 2013 security revenue will rise 27% to $70 million. That's well above F5's outlook for 14% overall sales growth. But security remains a small business for a company with $1.37 billion in revenue for its fiscal 2012 ended Sept. 30.

The company's security focus is on protecting Web applications from cyberattacks, says Manny Rivelo, F5's senior vice president of security and strategic solutions.

"Threats that organizations are experiencing, either in the data center or in the cloud, have less to do now with network perimeter and more to do with application security; that's where the vulnerability usually is," Rivelo, a former executive at Cisco Systems (CSCO), told IBD.

F5 could see a boost in ADCs because a top rival, Cisco, plans to exit that market as it's losing share. Yet, slowing revenue growth in ADCs has led F5 to target new areas, especially security.

In security, F5 is taking on new rivals such as Juniper Networks (JNPR), Fortinet (FTNT) and Check Point Software (CHKP), as well as smaller players Palo Alto Networks (PANW) and Imperva (IMPV).

F5's main business remains hardware, but it's developing software to run on its most powerful ADCs. In the second half of 2013, F5 aims to release an "application delivery firewall," a product "management expects to create meaningful revenue," Goldman Sachs said in a research report.

F5's security products have been designed for use in data centers to protect Web applications running on servers, says Greg Young, an analyst with research firm Gartner. F5 competes most directly with Imperva, Young says. He says security specialists like Check Point sell software that works across an enterprise, from data centers to branch offices, and compete with F5 more broadly.

Firewalls are standard enterprise security software designed to fence off computer networks from hackers. Firewall revenue is rising about 8% to 10% a year, says Young.

But more cyberattacks are targeting applications that run on computer networks. On one hand, customers and suppliers now access more business applications residing in data centers, where servers must grant or deny access. And meanwhile, company employees now routinely access Internet-based apps, raising the risk of security breaches.

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